DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Indiana Department of Public Welfare
Docket No. 87-189
Audit Control No. A-05-86-60241
Decision No. 970
DATE: July 25, 1988
DECISION
The Indiana Department of Public Welfare (State) appealed a
determination
by the Health Care Financing Administration (HCFA, Agency)
disallowing
$2,620,512 in federal financial participation claimed by the
State under the
Social Security Act (Act) for the period October 1, 1981
through March 31,
1985. The disallowance was based on an audit by the
Office of Inspector
General of Medicaid payments for services provided
in intermediate care
facilities (ICFs) and community residential
facilities (CRFs) from the time
these facilities were initially
certified until they were properly
recertified. See Audit Report No.
A-05-86- 60241 dated May 18, 1987,
Appellant's Appeal File, Exhibit
(Ex.) A.
The Agency found that the State had not properly certified seventy
CRFs
and five ICFs initially to participate in the Medicaid program
because
they were certified on the basis of limited surveys made before
the
facilities were operational and treating patients. 1/ The
State's
arguments presented both legal and factual issues.
For the reasons discussed below, we uphold the Agency's disallowance.
I. What the requirements are
Under the Act, section 1902(a)(33)(B) provides that the state
survey
agency will perform for the state Medicaid agency the function
of
determining whether institutions and agencies meet the requirements
for
participation under the state Medicaid plan. The Act further provides
at
sections 1905(c) and (d) that the Secretary shall prescribe
the
standards for the provision of proper care which must be met in
order
for a facility to be certified for participation under the
Medicaid
program as a provider of intermediate care facility services.
42 C.F.R. 442.30 (1982) provides in part:
(a) . . .
FFP is available in expenditures for . . .
ICF
service only if the facility has been certified as
meeting
the requirements for Medicaid participation, as evidenced
by
a
provider agreement . . . An agreement is not
valid
evidence that a facility has met those requirements if
the
Administrator determines that --
(1) The survey agency failed to apply the
applicable
certification standards required under Subpart D, E, F,
or
G of [Part 442];
. . .
(b) The
Administrator will make the determination
under
paragraph (a) of this section through onsite surveys,
other
Federal reviews, State certification records, or reports
he
may
require from the Medicaid or survey agency.
(Emphasis added.)
A provider agreement is effective as of the date the onsite survey
is
completed if, on that date, the provider meets all federal health
and
safety standards as well as any other requirements imposed by
the
Medicaid agency. 42 C.F.R. 442.13(b). If these
requirements are not
met, the provider agreement will become effective on the
earlier of the
date on which the provider meets all requirements or the date
on which
it submits an acceptable plan of correction to the state survey
agency
or an approvable waiver request, or both. 42 C.F.R.
442.13(c).
The State Operations Manual furnished by HCFA to the states provides
at
section 2150 (which was added to the Manual in October, 1980):
To be
eligible as a provider of services, a health
care
entity must be in compliance with the conditions
of
participation (or standards for ICFs and ICF/MRs).
When
certification is sought by an entity which has not
actually
begun operation, [the State survey agency should]
furnish
such precertification assistance as is needed or
requested
by the applicant. The assistance offered may include
an
interview with the administrator or director and a review
of
policy
statements and personnel records. Such
regulations
establishing a plan of treatment and clinical records
cannot
be
evaluated until the organization is operating
and
providing services to the patients. Make it clear to
the
provider that the effective date of participation will be
no
earlier
than the date on which the provider is determined
to
be in
compliance; or, if not in compliance, the date
on
which
all requirements are met; or an acceptable plan
of
correction or approvable waiver requests are submitted,
or
both.
Respondent's Appeal File, Ex. 2.
II. Whether there was legal authority for insisting that
patients be
in a facility at the time it
is surveyed
A. State's arguments
The State argued that there was no substantive legal authority
requiring
that patients be residing in a facility at the time it is surveyed
for
certification. In making its arguments, the State contended that
the
sole basis for the Agency's disallowance here was section 2150 of
the
State Operations Manual. The State reasoned that this Manual
provision
is not sufficient legal authority because it is either a
substantive
rule which should have been promulgated as a regulation in
accordance
with the Administrative Procedure Act (A.P.A.), or because it is
merely
an interpretive rule which is not dispositive.
In support of this argument, the State cited Estate of Smith v.
Heckler,
747 F.2d 583 (10th Cir. 1984), for the proposition that, if the
Agency is
going to rely on the Manual provision, that provision, like
the survey
certification process in Smith, supra, must be promulgated
after notice and
opportunity for comment under the A.P.A.
B. Analysis
We cannot agree with the State that there is no legal authority
requiring
that patients be residing in a facility at the time it is
surveyed. The
Medicaid statute requires the state survey agency to
determine whether
facilities meet the requirements for participation in
the Medicaid program,
including the standards prescribed by the
Secretary for an ICF. Section
1902(a)(33)(b) of the Act. The Act
further provides that the Secretary
prescribe standards for the
provision of proper care in ICFs and CRFs.
Section 1905(c) and (d) of
the Act.
In accordance with these statutory provisions, the applicable
regulations
allow the Secretary to find that a provider agreement is not
valid evidence
that a facility met the requirements for certification if
HCFA determines
that the survey agency failed to apply the applicable
certification standards
under Subpart D, E, F, or G of Part 442. Even a
cursory review of the
regulatory provisions of Subpart F of 42 C.F.R.
Part 442, which sets forth
the certification standards for ICFs,
indicates that many of these standards
measure the quality of care to
patients. Consequently, if the onsite survey
is meant to determine
whether the provider is meeting these standards, the
surveyor can make
such a determination only if there are patients in the
facility to
review.
For example, the standards require that each patient have an overall
plan
of care developed by the facility that sets goals to be
accomplished by the
resident, prescribes an integrated program of
activities, therapies, and
treatments designed to help each resident
achieve his goals, and indicates
which professional service or
individual is responsible for each service
prescribed in the plan. 42
C.F.R. 442.318(3) and .319. The only
way an onsite survey could measure
whether this standard is being met is for
the surveyor to actually
review patient records and personally observe the
patient to determine
whether the facility meets the standard. See,
e.g., the patient care
requirements for plan of care (42 C.F.R. 442.319),
resident record
system (42 C.F.R. 442.318), and meal service (42 C.F.R.
442.331). Thus,
we conclude that the regulations themselves do impose a
requirement that
the onsite certification survey be performed when patients
are residing
in the facility.
Moreover, the State Operations Manual provision in dispute merely
makes
explicit what is implicit in the language of the regulations -- that
a
facility must be operational before it can be adequately surveyed.
Thus,
the provision is interpretive. The Board has stated previously
that the
provisions of the State Operations Manual are interpretive
(or
interpretative) rules. Nebraska Dept. of Health, DGAB. No. 373
(1982),
p. 18. The notice and comment rulemaking process under the
A.P.A. is
not applicable "to interpretative rules, general statements of
policy,
or rules of agency organization, procedure, or practice." 5
U.S.C.
553(b)(A). Therefore, contrary to the State's assertions, notice
and
comment rulemaking was not required for the Manual provisions. 2/
Furthermore, as the Agency pointed out, this Board has previously
stated
that "if an interpretation by a federal agency of a regulation it
is
charged with enforcing is a reasonable one, and the State had notice
of
it, then it will be upheld by the Board." Nebraska, supra; Maine
Dept.
of Human Services, DGAB No. 712 (1985). The Manual provision
in
question was issued in 1980, prior to the disallowance period,
and
remained in effect throughout the period in dispute. The
State
Operations Manual was issued to the states by HCFA. The State has
not
denied that it received the Manual and had notice of the provision
in
question.
As we stated above, the reason for requiring that patients be in
a
facility at the time it is surveyed is so that the surveyors
may
evaluate whether the facility complies with the standards
of
participation applicable to patient care. Consequently, the
Manual
provision is a reasonable interpretation of the regulations.
Thus,
since the interpretation is a reasonable one and the State had notice
of
it, we see no reason not to uphold the interpretation in the
Manual
provision.
In addition, we find that Estate of Smith, supra, is inapplicable to
this
appeal. The State cited this case for the proposition that if
the
Agency is going to rely on a Manual provision it must promulgate
that
provision under the A.P.A. First, the Agency is not strictly
relying on
the Manual provision; it is actually relying on the regulation
that the
Manual provision interprets. Furthermore, we have held previously
that
the Board is not bound to apply a decision from a different circuit
as
controlling precedent. Tennessee Dept. of Health and Environment,
DGAB
No. 921 (1987), at p.12. Even if we were to apply the Estate
of Smith
decision, it is distinguishable from the case here. Estate of
Smith
dealt with the standards of performance and the clarity and certainty
of
the methods to be used in evaluating performance of a facility.
The
requirement that patients be in the facility at the time of
the
certification survey is clear from the regulation itself.
Consequently,
there was no reason to promulgate an additional provision where
that
requirement was already clear from the regulation alone.
III. Whether there was an adequate factual basis to support
the
finding that five ICFs were
certified prior to being
operational
and treating
patients
The auditors determined that of the nineteen initial certifications of
new
ICFs performed during the audit period, seven had been certified
before they
were operational and treating patients. The auditors found
that of the
seven ICFs, five received $790,062 in federal Medicaid
payments between the
dates of the initial certification and the first
recertifications that were
based on properly conducted surveys.
In essence, the State contended that the auditors' findings
were
inadequate to support a disallowance because they were based
on
supposition and implication. The State generally attacked the
auditors'
findings as unsubstantiated and contended that the findings could
not be
considered to be documentation or proof that the State
performed
certification surveys at these facilities prior to patients
being
admitted to the facilities. 3/
The State's arguments fail to persuade us that the auditors' findings
were
incorrect. The Board has repeatedly stated that a grantee has
the
burden to show that its claim for reimbursement is proper, thus
showing
that the audit findings were wrong. See 45 C.F.R. 74.61(b),(f),
and
(g); and Indiana Dept. of Public Welfare, DGAB No. 958 (1988) at p.
11,
citing New York State Dept. of Social Services, DGAB No. 204
(1981).
Since the State has possession of the documentation which would prove
or
disprove the findings, the State should be in a superior position
to
discredit the auditors' findings.
Our review of the record for each of the five facilities disclosed
that
the State submitted no documentation to discredit the findings
that
there were no patients residing in the facilities at the time of
the
initial certification surveys. Rather, the State made
unsubstantiated
assertions. While the State criticized the auditors for
allegedly
failing to question the surveyors about the discrepancies found in
some
of the State surveyors' documentation, the State failed to
submit
affidavits from these employees or other sworn statements from
these
employees which would rebut the auditors' findings. 4/
Furthermore,
while the State argued that the auditors failed to discuss this
matter
with the surveyors, the audit workpapers suggest that the auditors
may
have questioned some of the surveyors. Respondent's Appeal File,
Ex. 7.
Since the State failed to submit any documentation to prove that, at
the
time of these surveys, the surveyors actually evaluated patients in
the
facilities for compliance with the prescribed standards for
patient
care, treatment, and clinical records, we conclude that the State
has
failed to rebut the auditors' findings with regards to these
facilities.
Therefore, we sustain the Agency's disallowance of the FFP
claimed for
these facilities from the date of the initial certification until
they
were properly recertified pursuant to 42 C.F.R. 442.30(a).
IV. Whether the HCFA disallowance of $1,830,450 in FFP for
initial
certification of CRFs was proper
A. Background
A CRF is a privately owned home or apartment in a residential
setting,
staffed by trained personnel and licensed by the State to
provide
developmental training and support services to between four and
eight
developmentally disabled persons. Medicaid services to eligible
persons
are covered in CRFs as an intermediate care facility for the
mentally
retarded (ICF/MR) service and thus, for certification purposes, a
CRF
must meet the standards applicable to ICF/MRs set forth in 42
C.F.R.
Part 442, Subpart G.
The auditors found that the appellant certified 93 new CRFs as
service
providers under the Medicaid program during the audit period.
The
auditors determined that initial certification was based on
surveys
conducted before the facilities were operational and treating
patients.
Of these facilities, the auditors determined that 70 had
received
Medicaid payments. Appellant's Appeal File, Ex. A,
pp.4-6.
HCFA disallowed $1,830,450 in FFP claimed by the State because
the
facilities were not eligible to receive such payments until
proper
surveys were conducted.
B. State's arguments
The State generally disagreed with the auditors' finding that the
CRFs
were certified on the basis of limited surveys made before they
were
operational and treating patients. The State also argued that
the
auditors' findings were based on assumptions and conjectures that
are
not supported by any evidence in the audit workpapers.
C. Analysis
The State criticized the auditors' work papers because they supposedly
did
not contain the certification forms, the State licensing forms, or
written
statements from the individuals at the State Board of Health or
the CRFs who
gave information to the auditors. The State, however,
failed to mention
that the documentary evidence which it claimed the
auditors should have
included in its workpapers are the State's evidence
and in the State's
possession. Moreover, while this documentation may
not have been
duplicated for inclusion in the work papers, the State did
not deny that the
auditors examined this documentation during the audit.
The State was not
prevented during the course of this appeal from
presenting documentary
evidence that would contradict the auditors'
findings; if the State
questioned the veracity of the statements given
to the auditors by Board of
Health personnel and CRF personnel, the
State could have submitted written
sworn statements from State Board of
Health personnel and from the facilities
in an effort to prove that the
challenged statements were false. The
State presented no such evidence.
5/ The State instead chose to make
statements to discredit the audit
which were unsupported by any proof.
As we indicated in Indiana Dept.
of Public Welfare, DGAB No. 958 (1988), we
see no reason to discount
employee interviews with the auditors merely
because they were
summarized by the auditors in their workpapers and not
officially
recorded and sworn to. Finally, the State has the burden to
show that
the audit findings were wrong. New York, supra. Mere
accusations
without any documentary support to convince us to the contrary is
not
sufficient to persuade us that the auditors were necessarily wrong.
The parties presented documentation for only some of the CRFs in
dispute
here. We have reviewed all these records and find no evidence
to show
that patients were residing in the facility at the time of the
initial
certification survey. Thus, in the absence of any direct proof,
we find
no reason to discredit the audit findings, and we, therefore,
sustain
HCFA's disallowance for the CRFs.
V. Whether disallowing payments made to the
facilities is
inappropriate
The State argued that the disallowance concerns the survey practices
of
the State Board of Health, the State survey agency, which
receives
funding from HCFA for the expenses it incurs in conducting surveys.
The
State contended that since no evidence has been presented to show
that
any errors that were made in the conduct of these surveys
were
attributable to the Indiana Department of Public Welfare, it is
unfair
to penalize the appellant for something the State Board of Health may
or
may not have done. Consequently, the State argued that the
disallowance
of the payments made to the facilities between the time of the
initial
certification and the recertification was not proper.
The State's argument completely disregards the plain meaning of
the
applicable regulatory provision. The regulation clearly provides
that
FFP is available only where a facility has been certified as having
met
the requirements for participation in the Medicaid program. 42
C.F.R.
442.30(a). While a provider agreement is generally evidence that
a
facility is certified, 42 C.F.R. 442.30(a)(1) allows the Secretary
to
"look behind" the provider agreement to determine if a facility
was
properly certified. The State failed to show that the
questioned
facilities were properly certified. HCFA, then, properly
denied the FFP
claimed for these facilities.
Furthermore, this was a properly promulgated regulation of which the
State
had notice. As the State Medicaid agency, it was the
appellant's
responsibility to know the effect of this regulation and, if
necessary,
to monitor the performance of the survey agency. Therefore,
we conclude
that HCFA properly disallowed the payments made to these
facilities.
Conclusion
For the reasons indicated above, we sustain the Agency's disallowance
in
the amount of $2,620,512.
________________________________ Judith
A.
Ballard
________________________________ Donald
F.
Garrett
________________________________
Alexander
G. Teitz Presiding Board Member
1. The auditors stated that they were told by the State survey
agency
officials that the certifications were based on early inspections
made
by "engineer, fire marshal, and State licensure reviewers,"
leaving
patient-related aspects of the survey for a later date, generally
within
a year. Audit Summary, Appellant's Appeal File, Ex. A, p.
ii.
2. Substantive or legislative rules create law or obligations,
while
interpretative rules are statements of what an administrative
officer
thinks a statute or regulation means. See, e.g., Cabais v. Egger,
690
F.2d 234, 238 (D.C. Cir. 1982).
3. The State devoted a considerable amount of its briefing to
a
detailed discussion of the facts concerning each of the five ICFs
and
many of the CRFs. We reviewed the record presented for each of
these
facilities and determined it was not necessary to discuss each
one
separately because there was no proof that there were patients in
the
facility when it was certified.
4. The State made much of the auditors' alleged findings
of
discrepancies in the State surveyors' documentation. While
these
discrepancies may have made the auditors suspicious concerning
the
propriety of the certification surveys, the discrepancies themselves
are
not directly relevant here. The relevant question here is whether
there
were any patients in the facility at the time of the initial
survey.
5. The State requested a hearing when it first appealed
the
disallowance. The State renewed its request for a hearing in a
letter
to the Board on May 5, 1988. The reason given was that "so
many
questions have arisen concerning the evidentiary basis of the audit
and
the professional abilities of the auditor that a hearing is necessary
to
fully examine those issues and develop an adequate record for
this
Board's review." Although the Board granted the request for
an
evidentiary hearing, and agreed to hold it in Indiana, the
State
subsequently withdrew its hearing request and offered no
additional
documentation